International Law Advisory - UK Serious Fraud Office Issues Guidance on Overseas Corruption Investigations

July 30, 2009

On 21 July 2009, the UK Serious Fraud Office (“SFO”) – the UK agency responsible for enforcing the UK anti-bribery laws – issued a paper titled “Approach of the Serious Fraud Office to Dealing with Overseas Corruption.” The nine-page document signals the SFO’s intent to encourage corporations to self-report evidence of overseas corruption violations, to expand coordination of its enforcement activities with other national regulators, and to hold UK companies to international best-practice anti-corruption compliance standards. The guidance also sets out, at a practical level, how the SFO intends to work with self-reporting corporations in conducting investigations and, as an inducement to self-report, the criteria it will use to determine whether it will offer a self-reporter a civil – as opposed to criminal – settlement of the matter. Although the guidance paper is immediately effective, the SFO has invited public comments on it, with no stated deadline.

The SFO’s guidance paper comes at a time when (as previously reportedⁱ) a draft bill to reform the UK’s anti-bribery laws is pending in Parliament that, if enacted, could give the SFO significant additional authority to prosecute anti-bribery offences. The prospect of active enforcement of the anti-bribery laws by the SFO – which has been limited to date and has resulted in extensive criticism of the UKⁱⁱ – would subject UK-based companies (and their directors and employees) to a degree of compliance risk that may not have been evident in the past. This pertains both to those companies’ operations in the UK, and in those jurisdictions with which the SFO is likely to share information, most notably the United States, where the SFO has a close cooperative relationship with the U.S. Department of Justice (“DOJ”), one of the world’s most active anti-corruption prosecutorial agencies.

A Blueprint for Increased Enforcement

The SFO’s guidance represents its most detailed statement to date concerning how it intends enforce the UK’s foreign anti-bribery laws.

Significantly increased resources: The July 21 guidance sets out a new organizational structure and significant additional resources devoted to overseas corruption enforcement. A separate work area (the Anti-Corruption Domain) has been set up, headed by Keith McCarthy, a former evaluator for the Council of Europe’s Group of States Against Corruption and UK representative at the OECD’s Working Party on Tax Crimes and Money Laundering,ⁱⁱⁱ with a staff strength that eventually will reach over 100 persons who will be trained specifically on anti-corruption cases.

Notably, the SFO confirmed in its guidance paper that it intends to leverage suspicious activity reports (“SARs”) in investigating foreign bribery offences. Large volumes of SARs are filed each year by companies under the UK Proceeds of Crime Act; the reports are filed with a separate agency, the Serious Organized Crime Agency (“SOCA”), but could contain information on foreign bribery activity that could be of interest to the SFO.

Benefit of Self-Reporting: The SFO intends to encourage a system of self-reporting by corporations. To create an incentive for corporations to self-report, the guidance explains that the SFO will attempt to dispose of cases meeting certain criteria civilly and not criminally where possible. Such a disposition would, among other benefits, not implicate the mandatory debarment provisions of Article 45 of the EU Public Sector Procurement Directive of 2004, and potentially remove an obstacle that has discouraged many companies from submitting disclosures in the past.

The favourable treatment criteria listed by the SFO are designed to test a self-reporter’s willingness to provide ongoing cooperation to the SFO as it conducts its own inquiries:

A willingness to cooperate with the SFO to define the scope of any additional investigation deemed necessary;
A willingness to enter into an investigative process likely to result in the following sanctions: restitution through a civil recovery order, significant compliance remediation and training for company personnel and systems, discipline being meted out by the company to individual employees, and in some cases, their prosecution by the SFO; and
A willingness to cooperate not only with the SFO, but also with other law enforcement agencies in the UK and abroad in order to reach a global settlement. This criterion is particularly significant, as it likely signals the SFO’s intent to involve overseas prosecutors, including the DOJ, in the investigation and settlement of matters disclosed to it. The guidance also is clear that the SFO now expects notification in the converse situation, i.e., where companies make voluntary disclosures to the DOJ involving conduct “within [the SFO’s] jurisdiction”.

In the event that the SFO is satisfied that a self-reporter fulfills the above criteria, the guidance indicates that detailed – and potentially costly – investigatory procedures involving electronic document capture and review (and other techniques if necessary) will be an integral part of the process, as will significant SFO input into the self-reporter’s investigation methodology if deemed necessary.^iv However, the SFO guidance indicates that in the case of a voluntary disclosure, the investigation generally can be performed and managed by the company through its professional advisors, rather than directly by the SFO.

Conditions of Settlement:

Once an investigation has concluded, the following sanctions and remedial measures can be expected to be part of any negotiated civil settlement:

Restitution by civil recovery order, to include the amount of the unlawful property, interest and the SFO’s costs;
A program of compliance remediation and training for the company, vetted and agreed with the SFO; and
In some cases, the appointment of an external, third-party compliance monitor.

The SFO makes a point, however, that it will pursue individuals if the facts and circumstances warrant, and may pursue criminal charges against the corporation even if the above conditions are met, such as in cases where members of a company’s Board of Directors participated personally in the underlying corrupt practices.

Best Practice Compliance Standards

The SFO’s guidance makes clear that it now expects UK-based companies to observe and implement best practices in their anti-corruption compliance programs generally, and not only as a result of entering into a settlement to resolve an investigation. These include the adoption of:

a clear corporate statement prohibiting corruption;
a Code of Ethics that sets out universal anti-corruption principles applicable regardless of local laws or culture;
anti-corruption policies and procedures addressing gifts, hospitality and facilitating payments (notwithstanding the fact that facilitating payments are not excepted under existing UK overseas corruption laws; this likely reflects longstanding practice that UK prosecutors have traditionally exercised their discretion to not prosecute companies making small facilitating payments), the hiring of third parties including risk assessment, vetting and due diligence procedures, and political contributions and lobbying activities;
a policy expressly making the company’s anti-bribery code applicable to third party business partners;
training to ensure the anti-corruption culture reaches all company staff;
regular compliance checks and auditing;
a corporate “hotline” or “helpline”; and
an effective employee discipline process in the event that overseas corruption issues are discovered at the company.

Opinion Release Procedure; Expectations Acquirers will Conduct Pre-Closing Anti-Corruption M&A Due Diligence

Last but notably, the SFO has endorsed a U.S.-style opinion release procedure for companies seeking assurances as to its enforcement intentions in at least one scenario – that in which an acquirer of assets with a significant overseas corruption risk profile discovers an issue during pre-closing due diligence and approaches the SFO with respect to its enforcement intentions.

Significant Open Questions

Although the SFO’s guidance presents a case for self-reporting that may result in an increased number of enforcement actions, some significant questions remain regarding how and whether it will work in practice. On the one hand, the potential to avoid criminal prosecution, mandatory debarment from public contracts and the ability to have greater flexibility in an internal investigatory process will present a significant incentive to many companies to disclose. This is especially evident in an enforcement environment in which the likelihood of the SFO discovering misconduct independently – such as, for example, through a whistleblower report or SAR, or through a cross-referral from another jurisdiction – may be greater than what has been perceived in the past.

On the other hand, experience with the U.S. Foreign Corrupt Practices Act (“FCPA”) enforcement regime (aspects of which may have served as a model for the SFO’s guidance) suggests that some aspects of the SFO’s new approach may deter corporate self-reporting and pose other challenges:

Notwithstanding the listed criteria a self-reporter will need to fulfill in order to receive civil disposition of the reported matter, the benefit to companies considering self-reporting remains uncertain, a fact which the SFO itself acknowledges (the guidance notes that “[w]ithout knowing the facts, no prosecutor can ever give an unconditional guarantee that there will not be prosecution of the corporate”). However, it must be said that even this hedged commitment is a stronger commitment than U.S. authorities have been prepared to give for voluntary disclosures.
The document expresses a clear preference for referral of overseas corruption matters to other relevant prosecutorial authorities. The possibility of referral to, in particular, the DOJ for prosecution under the FCPA may deter some UK companies from self-reporting, in light of UK businesses’ often important U.S.-based operations and the very significant and increasing levels of fines and penalties levied by the DOJ and Securities and Exchange Commission.
Lastly, the SFO’s guidance signals an expectation that companies purchasing assets with significant anti-corruption risk profiles should perform extensive due diligence on their targets pre-closing, and voluntarily disclose the results if a significant issue is discovered. Experience with the FCPA suggests, however, that such expectations can be challenging in the context of many transactions, as acquirers rarely have unfettered access to the relevant target information and personnel pre-closing, and the target may have strong incentives not to grant meaningful access to the acquirer’s representatives for the purposes of conducting due diligence.

Ultimately, only time will tell whether the SFO’s new approach yields anything like the levels of enforcement under the FCPA over the past decade. All indications are, however, that UK enforcement (including through the draft anti-bribery reform bill, if enacted) is likely to rise in both the short and longer term. Accordingly, Company Secretaries/General Counsels should reevaluate their compliance programs, and ensure that those policies are consistent with emerging UK and applicable international compliance standards.

For companies that voluntarily disclose in the US, the SFO’s expectation that timely disclosure will be made to it as well must be borne in mind in assessing any disclosure issues.

We will continue to monitor developments in connection with the UK’s enforcement of its anti-corruption law, and encourage concerned companies and other parties to take advantage of the SFO’s invitation to comment on the process. If you would like to discuss the compliance or enforcement implications of the SFO’s recent release, the Draft Bribery Bill, or the prospect of submitting comments to the SFO regarding its guidance, please contact David Lorello (dlorello@steptoe.com; +44(0)20 7367 8007), or Helen Daniel (hdaniel@steptoe.com; +44 (0)20 7367 8021) in Steptoe’s London office, or Lucinda Low (llow@steptoe.com; +1 202.429.8051); Ed Krauland (ekrauland@steptoe.com; +1 202.429.8083); Matt Herrington (mherrington@steptoe.com; +1 202.429.8164), or Tom Best (tbest@steptoe.com; +1 202.429.8079) in Steptoe’s Washington, D.C. office.

ⁱ See http://www.steptoe.com/publications-6016.html.

ⁱⁱ See http://www.steptoe.com/publications-6238.html.

ⁱⁱⁱ Press Release, Serious Fraud Office, “Serious Fraud Office Announces New Head of Anti-Corruption”, 9 October 2008.

^iv Press Release, Serious Fraud Office, “Appoach of the Serious Fraud Office to Dealing With Overseas Corruption”, 21 July 2009, at pgs. 5-6.